Intellectual Property Issues for the Emerging Marijuana Industry

The protection of intellectual property (IP), such as trademarks and creative marketing innovations, is a benefit of federal law denied to participants in the nascent marijuana industry emerging under state-level legalization reforms.

The issue of “Trademark Laundering, Useless Patents and Other IP Challenges for the Marijuana Industry” is explored by Sam Kamin and Viva Moffat, law professors at the University of Denver College of Law, in the Winter, 2016 issue of the Washington and Lee Law Review.

The clash between state and federal law creates numerous and generally well-known problems for the marijuana industry, including federal prosecution for violations of the Controlled Substances Act (CSA), enhanced tax liabilities due to a prohibition on business expense deductions, lack of access to the banking system and a lack of a legal mechanism to enforce contracts (because contracts for illegal activity are unenforceable). Furthermore, according to Kamin and Moffat, “it is often difficult for marijuana business to access law and lawyers in the same way that other businesses do” because lawyers are technically barred from facilitating illegal activity.

Each of these issues presents challenges for a marijuana-related business, and most have been able to find a workable remedy to address them.

Trademark protection is yet another problem created by the clash between state and federal law. There are two ways to secure protection of trademarks, registering them with the U.S. Patent and Trademark Office (USPTO) or through the use of the Lanham Act, which protects the use of unregistered trademarks.

In order to protect a trademark, Kamin and Moffat explain that “the owner must demonstrate that it is using in commerce . . .a mark that is ‘distinctive.’” This means the mark is regularly associated with a particular product and firm and used in commerce. Here is the problem—the USPTO has long rejected trademarks used in illegal commerce. Therefore, “the illegality doctrine thus poses great, possibly insurmountable, problems for the marijuana industry.”

Also, even if there were a way to interpret state laws as allowing for registration with the USPTO (such as interpretations that may cover growing marijuana for personal use), problems remain invoking the federal Lanham Act—which relies on interstate commerce to invoke the jurisdiction of federal law. State-level legalization pertains only to, and explicitly to, activity within a state.

Trademarks for marijuana product names are thus hard to pursue, and the difficulty in securing legal help makes this even more of a challenge.

On the other hand “those who merely provide lawful services to marijuana businesses . . .have received federal trademark registrations for marks that include the word “marijuana” and images of marijuana plants.” This gives a long-term advantage to those who provide related products and services but not marijuana-based product; they can build up goodwill and consumer recognition with protected trademarks “while those who grow, buy, and sell the actual product do not.”

In response to this quandary, the practice of “trademark laundering” has emerged in which trademarks are secured for legal goods and then used in connection with the sale of marijuana. One example of this practice is securing a trademark for a chocolate product without marijuana, and then using the mark for a chocolate edible product with marijuana.

The short-term benefits of this strategy are problematic, as it remains difficult to enforce such trademark rights in court as they pertain to marijuana-related products. In other words, Kamin and Moffat explain that “a marijuana business may be able to cobble together a federal trademark right but still not be in the position to obtain a federal trademark remedy.”

There are, however, many state laws that provide some measure of protection for trademarks and trade secrets. However, “at the risk of discounting the protections that these various [state] doctrines provide, they leave as a relative matter, the marijuana industry is at a disadvantage compared to other fully legal businesses and even when compared to ancillary marijuana businesses.”

The same problems exist with respect to patents, and federal patent law “is almost as elusive and almost as useless for the marijuana industry as trademark law.”

First, there are legal vulnerabilities in just filling out a patent application for a cultivation or manufacturing process involving marijuana; it creates an admission of a violation of the federal CSA. Next, a patent can only be protected in federal court, which remains hostile to claims involving illegal activity. State level trade secret laws provide some protection, though, for industry practices, but these protections disappear when the practice becomes public (or reverse engineered).

In states with legal marijuana, there are contractual and licensing remedies to some of these issues, including confidentiality and non-compete agreements to protect trade secrets. Licensing agreements with firms in other states can conceivably extend some of these protections.

In any event, Kamin and Moffat explain that “what all of this demonstrates is that the general unavailability of federal IP protections requires innovation, ingenuity, and risk tolerance on the part of the regulated marijuana businesses and their attorneys. It also shows that marijuana businesses, forced to cobble together state-level protection with other legal tools, will find themselves disadvantaged vis-à-vis other businesses.”